Opinions on subjects of the day mainly as it pertains to common sense suggestions in improving the quality of life of all who are fortunate to live in this serendipitous island of Sri Lanka.

Thursday, May 13, 2010

A holistic approach to governance is required and not a buckshot one

The new administration in Sri Lanka has an electoral mandate, despite the low voter turnout to set about policies in place to achieve its goals, which is hoped to achieve a GNP per capita of US$4,000 in five years from the estimated US$2,000 currently. There are severe structural changes to the economy that are required, and the government has the legislative power to enact laws to achieve these changes.

It is a once in a lifetime’s opportunity afforded this administration, to do the needful if we are truly to reach the targets set, but all sections of government and the private sector have to work with a common purpose, with no passing of the buck anymore, if we fail to achieve this objective.

Taking the example of the Ceylon Petroleum Corporation as a case study in how this approach has to be adopted in practice, we note that a new Chairman in the guise of Mr Harry Jayawardene has been appointed. Whilst on the face of it, this may seem a strange appointment, to appoint a Business Tycoon to this position, on the other hand it may be the right choice as a person with the competence to affect the real changes that are required. One must also note that he was a onetime Chairman of Sri Lankan Airlines, so is no stranger to head a Public Enterprise.

Added to this his immediate boss is the new Minister of Petroleum Resources, Mr Susil Premajayanth a respected politician with clean hands, being given a very important job to weed out any existing corrupt practices and clean up a Ministry which was notorious as a hotbed of graft. These two people have an unenviable job ahead, and could define the direction of this government if left to do a good job without interference. I will address some of the immediate issues that are required to achieve this goal. The Rs55B owed to the CPC by the CEB(Electricity Board for fuel supplies) has to be resolved, if the losses of the CPC are to be seriously tackled. Either this debt should be taken up by the Treasury and CPC compensated or some decision needs to be taken, so that CPC can get back on a proper footing.

Then the inefficiencies within the CPC need to be tackled, like the gross over staffing and the 1000+ people on the payroll, due to political patronage, but who do not turn up to work, preventing this organization from returning to profitability as it should be a highly profitable entity with a potential profit before tax of about Rs5B per annum, taking into account the price of oil, selling prices, refinery capacity and infrastructure. Further the lack of arms length of the deal to sell the gas by-product of CPC to LAUGFS, needs to be corrected, so that a market rate can be established for a fairer price to CPC of this valuable product.

In doing this, the bad dream of the oil hedging scandal, which only Minister Premajayanth (the only minister including the President) understands and is briefed on, needs to be shunted out of its balance sheet and expunged. If the new Chairman is allowed to rationalize and modernize this behemoth, and the trade unions representing its overpaid employees are handled with tact and persuasion, I believe the massive turnaround of over Rs20B in profitability can be achieved, flowing into the treasury and would be a clear indication of the government’s serious intentions of cutting the fat, improving productivity, showing the IMF they are truly making headway, and will go a long way in instilling confidence.

In order therefore to succeed the whole machinery of government has to work on the same page, like pay their dues. For example, for the CEB to pay the CPC, they in turn need to be paid the bills by all the state institutions, security forces, ministries and the ministers themselves and their cohorts who have not paid their individual bills and have used their influence of position not to have their electricity terminated, unlike lesser mortals like us who have automatic termination if unpaid. That is what I mean by a holistic approach, as otherwise it is impossible to run any entity that is not allowed to function with true independence.

In doing so external government to government deals also need further investigation to ensure they too are arms length such as the oil deals with Iran, that are boasted of as being favorable, which in turn have shown to be most unfavorable to Sri Lanka in hindsight, and the extension of credit terms, when no one would give us credit, now seem to be outrageously expensive, bearing in mind the arms length bond issues that sovereign debt of Sri Lanka can now command.While Sri Lanka is in an enviable position regarding its external financing, we should not squander this short term benefit, but instead use it to bring down the huge deficit on the government current account, used to finance recurring expenditure, if we are to tame the rising inflation, which in turn will lead to rising rates if spending is not curtailed. What better way to ensure this, than the turnaround of the loss making institutions into profit. Despite the expected tourist boom, the increasing losses of the twins of Sri Lankan Airlines and Mihin Air seem destined to drag us down further, unless the red ink stops flowing.

I have merely picked a small example, to show what is happening, and what needs to be done, and this if replicated across the arms of government, will reduce waste, reduce cost hopefully by reducing the amounts going into lining of the pockets, and thereby benefit the economy, as actions can now be performed not just with votes in mind, but real growth, which is the final legacy that is left for posterity.

4 comments:

I'm afraid that when you talk about the government goals of bringing GDP per capita up to $4,000 pa you have immediately lost your readership.

The truth is that the famous doubling of Lankan income since 2004 is purely illusory. Your workers may be getting 750 rupees a day where before they were getting only 400 but in practice they are no better off as prices have gone up proportionately. In a period where dollar inflation has been less than 15% all told rupee inflation has been 100% yet the exchange rate has hardly budged because of inward remittances, either from donor governments or individuals, allowing an artificially high exchange rate.

The problem with the CEB is simple. It is selling electricity at a lower rate than it is paying for it, a result of Chandrika and Ranil refusing to let coal-powered stations be built, and Ranil dealing with power cuts by paying an exorbitant price for private diesel-generated energy.

Mihin Lanka should simply be closed down. Sri Lankan airlines is a different matter as many of its problems come from a management policy in the interest of Emirates and not the company they were supposed to be managing.

whatever has happened in the past we need to strive and make good in the future. So even the new Minister of Energy and Power, Champika is also made in the same graft free mould, so we expect a proper assessment of the situation and urgent steps in correcting the rot, so I look forward to better times, even though I am very critical of the regime.